How To Buy Your First Home With 5% Deposit, Paying No LMI (First Home Loan Deposit Scheme)

Hi guys, from 1 January 2020, the government
introduced a new program called First Home Loan Deposit Scheme. This scheme will allow people to buy their
first home with a deposit of as low as 5%, without paying lenders mortgage insurance. If you’re new here my name is Dennis Mei and
I’m a licensed mortgage broker for more than 10 years. In this video I’ll discuss what is First
Home Loan Deposit Scheme, how it works and how you can save tens of thousands of dollars
in lenders mortgage insurance using this scheme. And towards the end of the video, I’ll also
discuss some issues you may not be aware of, so that you’ll have a better understanding
of the scheme and don’t get crash and burn. Let’s just get right into it. First Home Loan Deposit Scheme is introduced
by federal government, so it’s available for all states and territories in Australia. It was introduced and commenced to work from
1 January 2020. So it is up ‘n running when you watch this
video. Before diving deep into discussion of this
scheme, let me briefly talk out why this schemed was introduced. In my last video, I explained that have to
pay lenders mortgage insurance if your deposit is less than 20%. The lenders mortgage insurance can be very
expensive, it can be as high as 4% of the property price,
It is an extra cost for people to buy a property, if they don’t have enough deposit. So the government wanted to do something to
make property more affordable, especially for first home buyers. They simply told the bank that listen, instead
of using mortgage insurance to cover your risk for high LVR loans, the government, will
put together a scheme, as a guarantee to protect you for those high risk loans. These guarantees will be available to first
home buyers free of charge, as long as they meet certain criteria. This is how first home loan deposit scheme
was introduced. It simply allows the eligible home loan borrowers
to buy their first home with a deposit as low as 5% without paying lenders mortgage
insurance.. For a property of $500,000, it can save you
as much as $20,000 if you’re eligible for this scheme. To be eligible for the scheme, you must be
at least 18 years old and must be Australian citizen. Permanent resident is not qualified for this
scheme. If you are a couple and want to buy a property
under both names, both you and your partner must be Australian citizens. If you’re single, your annual taxable income
can’t be more than $125,000 a year in last financial year. For a couple, the limit is $200,000
Remember this taxable income is the income amount assessed by taxation office. It is not just the wage and salary from your
employment or business, it also includes the incomes from other sources, such as investment,
interest and dividends. And it must be your first time to buy a residential
property, including your partner. If you have ever bought a residential property
before, either by yourself or with someone else, you are not eligible for this scheme. You can buy almost any type of properties,
as long as it’s zoned as residential and you will use it as your principal place of
residence, not for investment. It can be a house, townhouse or apartment.. You can also buy land and build or off-the-plan. However there are thresholds for property
price n the scheme. It varies from location to location of the
property. You can see that in Sydney the property price
is capped on $700,000, as well as in Newcastle. Other areas in NSW the price is capped at
$450,000. In Victoria, Melbourne and Geelong’s property
price is capped at $600,000, $350,000.for other areas. You can find more details in the link under
this video. Now let me discuss how this scheme works. There are total of 10,000 places available
for this scheme every financial year. Among these 10,000 places, 5,000 are allocated
for CBA and NAB. The remaining 5,000 are allocated to other
25 smaller lenders. You can apply to reserve a place when you
apply for the home loan. You can use your mortgage broker to apply
to reserve the place in this scheme, or directly with the bank. As far as home loan application process is
concerned, there is no difference whether you use this scheme or not. Now there are some issues that you may not
be aware of. Some of my clients thought that under this
scheme, the bank will assess their loan application as 80% LVR. It is not true. For the banks, the loan application will still
be assessed based on the LVR, no matter you use this scheme or pay LMI. For example, you still need to show the genuine
saving. Your employment history also needs to meet
certain conditions. Another issue is that a place in the scheme
was allocated to you, you have 90 days to find and buy a property. Otherwise your place will be taken away and
given to someone else in the waiting list. You have to re-apply for a place in the scheme. You can’t reserve for more than one places
at the same time, even though you can use the same place for a different bank. These places are filled up very quickly. In fact when I make this video, all 5,000
places allocated to CBA and NAB have been filled up for this financial year. So it is important for you to manage the timing
of applying for the loan and buying the property if you want to use this scheme. You may need careful and strategical planning
for this. You should discuss this with your mortgage
broker for more advice. In this video I discussed what the First Home
Loan Deposit Scheme is, how it works and the issues you need to be aware of. If you want to find out whether you are eligible
for the scheme and what is the best strategy to reserve a place and take advantage of it,
we can help you. Please give us a call or make an enquiry online. You can find our contact details to the right
or in the description area below. If you are a first home buyer, I’d like
to hear from you. Do you think this scheme will work for you? What is your biggest challenge in buying your
first home? Or which areas do you want to learn more about? It will help us to make this channel more
useful and relevant to you. Please leave your thoughts and questions in
the comment area below. I’ll read your comment and get back to you
if you need any advice. All right guys, that’s it. Make sure press the like button if you find
this video helpful and share it to your friends if you think it may help them as well. Also check out the video on the right that
will give you some extra information. All right, thank you for watching this video,
I’ll see you on the next one.

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